Mortgage Rates Quiet After Jobs Report
During the first week of every month, there is always something
to debate when the employment data is released on the first Friday of the month
– and this time no different. The unemployment rate fell to 4.4% from 4.5% in
March but was forecast to have increased to 4.6%. Non-farm jobs were thought to
increase 185K, jobs increased by 211K; private jobs were expected up 180K, they
increased 194K. Average hourly earnings expected up 0.3% increased 0.3%. The
labor participation rate in March was 63%, it slipped to 62.9% in April. Those
stats were the pluses. The negatives; March non-farm jobs that were
surprisingly weak at 98K were revised to 79K, March private jobs initially
reported at a weak 89K were revised to 77K. The annual average hourly earnings
declined from 2.7% in March to 2.5% yr/yr in April.
When the data hit, there was an immediate reaction
that the data was bearish to interest rates and mortgage prices. But the
initial reaction sent the 10yr note down to 2.34% and MBS prices upward from
yesterday’s close. It took 30 minutes for traders to reverse, and it has been
calm ever since.
The chatter after the employment report was that it
would increase the potential of the Fed increasing the fed funds rate at the
June meeting. That is not an unreasonable thought, but so far traders are not
buying it. If you need a reason to balance fundamentals with technicals this is
a good one. Talk is one thing - actual market movements, however, is where the
focus should be. The decline in yr/yr average hourly earnings and the last two
months of weak job growth have kept interest rates steady so far. March and
April job growth taken together show just 145K averaging the two months. 173K
of the 211K increase in April were in the low-wage service-producing sector,
only 21K jobs in goods producing.
The long end of the interest rate yield curve pays
more attention to inflation outlooks than job growth, although not ignoring the
job and unemployment readings. Inflation based on this morning’s report and now
linked to big declines in commodity prices led by crude oil are balancing the
better jobs and the drop in the unemployment rate so far, this morning.
The employment report this morning appears to be a
neutral reaction from both the stock and bond markets so far today. Rates
holding steady but stocks lately are losing some momentum. Now that April employment
data is out, the next hurdle for the treasury markets is next week’s quarterly
refunding issuing new 10yr and 30yr note and bond. At 11:00AM, it is quiet with
the 10yr at 2.35% and MBS showing little changes. There are no more data points
today except March consumer credit later this afternoon - but Fed officials are
out there along with Janet Yellen.
Locking on Friday can make you rest easy, especially
since we have an unknown over there in France, but if you are going to float,
do such with caution.
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